EUROPE - More than two-fifths of pension schemes would consider a partial buy-in or full buyout in the next year if there is the right level of support from the employer and attractive pricing, according to Clear Path Analysis.

A qualitative survey of 42 European pension funds from countries including the UK, Netherlands, Germany and France revealed 84% of those considering a de-risking solution would prefer to begin with a buy-in and then move on to a full buyout of liabilities with an insurer.

Almost three-quarters (73%) of all respondents said the main driver for considering a buyout/in is to limit the sponsoring employer's exposure to further funding liabilities, while 43% perceive it as a way to reduce time spent on risk management. At least 18% said they would specifically use it to help protect the company's share price.

The research conducted as a follow-up to Clear Path Analysis' recent report on longevity, showed that partial or full de-risking has become a key issue for pension scheme managers and employee benefit directors in the next year. (See earlier IPE article: Trustees advised to check impact of longevity hedge on buyout)

In particular, the findings revealed two-thirds of all respondents have increased the level or frequency of reporting to the finance director or chief executive than in the past - a move which the organisation says demonstrates pension scheme risk and liabilities are becoming more of a "boardroom issue".

Over half of the respondents (56%) claimed the idea of de-risking in the next year is being driven by a desire to move closer to a position of complete de-risking, while 21% said they had spent time planning the move but only now felt pricing was "realistic".

However, almost a fifth (19%) claimed they wanted to complete the process before recent changes to Solvency II are implemented, which could affect the amount of capital insurers have to hold as reserves.  

The biggest potential challenge to de-risking identified by 79% of schemes is ensuring the sponsor and trustees have the same objectives and a clear idea of the work required, although 57% considered timing the transaction to gain the best value was more of an issue.

Data cleansing, difficulties over the 'fairness' of only buying out certain tranches of liabilities and the work involved in divesting assets also raised concerns from respondents.

Noel Hillman, managing director of Clear Path Analysis, said: "The survey re-enforced our opinions that pension plan de-risking is rapidly becoming a central board room issue as finance directors and chief executives realise the vast benefits a buy-in or buyout can bring to the funding position of the company, and in turn the confidence amongst the companies shareholders of the corporations overall finances."

Clear Path Analysis will publish a new report in May on 'Buy-ins and Buyouts for pension schemes' that will, among other things, feature contributions from 17 European pension funds, assess the state of the market and examine how Solvency II will affect the pricing of transactions. 

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